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Average U.S. mortgage rate ticks up to 3.33%

Rate is 4 basis points from the all-time low of 3.29% set in early March

The average U.S. rate for a 30-year fixed mortgage rose two basis points to 3.33% this week, not far from the 3.29% all-time low set in early March.

The rate rose from 3.31% in the prior week, Freddie Mac said on Thursday.

The weekly average has moved within a two-basis-point band this month “as the market searches for direction in the fog of economic data,” said Sam Khater, Freddie Mac’s chief economist.

At the end of March, the Federal Reserve said it would buy “unlimited” amounts of mortgage-backed securities to boost demand. Between March 13 and April 13, the central bank acquired $458.1 billion of agency bonds, according to data on the website of the Federal Reserve Bank of New York.

Those purchases are aimed at greasing the wheels of the credit markets as some investors hang back to see what will happen to the economy as the tally of confirmed U.S. COVID-19 infections soars past 826,000.

“While financial markets initially rallied on the news of Federal Reserve support and are improving due to the Senate’s passage of a new small business stimulus, we continue to see a deep economic contraction amidst uncertainty,” Khater said.

Typically, mortgage rates stay within a predictable range above the 10-year Treasury yield – in recent years, the difference for a 30-year fixed loan has averaged about 1.6%.

But, these aren’t normal times. After the COVID-19 pandemic hit the U.S. economy in mid-March, lenders began pricing in a so-called risk premium to buffer against potential losses.

The margin, meaning the difference, between the weekly average 10-year Treasury yield and Freddie Mac’s 30-year fixed mortgage average rate was 2.63% last week, not far from the 11-year high of 2.69% it reached at the end of March.

This week, it’s about 2.7%, using the 0.63% Treasury yield from Monday in place of a weekly Treasury average that won’t be published until next week.

While mortgage rates may continue to be volatile, the band they’re going to bounce around in during the rest of the year isn’t all that wide, according to a forecast by Freddie Mac last week. The annual average rate for a 30-year fixed mortgage probably will be 3.3% in 2020 and 3.1% in 2021 as the economy struggles to get on firm footing, the forecast said.

Freddie Mac on Thursday also reported average rates for two other types of home loans. The 15-year fixed rate was 2.86%, up from 2.8% last week.

The five-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.28%, down from last week’s rate of 3.34%.

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